Keith Schaefer: Now Is The Time To Own The Oil & Gas Leaders

[This article originally appeared on The Energy Report and is republished here with permission.]

U.S. shale oil producers have responded to the oil price collapse so quickly, and with such discipline, that they've shown they are able to turn production on and off as if with a light switch. As Keith Schaefer tells The Energy Report, that means it's time to be nimble, and to keep small positions until oil finds a stable new price level.

The Energy Report:Keith, the first U.S. grassroots refinery in nearly 40 years just began operation in North Dakota. Is the growth in U.S. oil production going to catalyze refinery construction?

Keith Schaefer: I'm going to say no. U.S. production has peaked and we're doing just fine, so I don't see any great need for more refineries right now.

There was talk a couple of years ago, particularly in 2012–2013, that with unbridled shale oil growth we would need more refineries. But the producers have been more disciplined than anybody expected in the last three months, with the rig count declining sharply and then staying down.

I think we're going to see a drop in U.S. production, so I don't see the need for any new refineries right now. The only thing that could change would be even more demand growth, which we're seeing because of lower prices. Somebody might get the idea that we need another refinery to meet that demand.

Right now, refinery crack spreads are actually very good. They're $20–25 per barrel ($20–25/bbl), which for this time of year is fantastic. But I don't know if that's good enough to warrant somebody spending tens of billions of dollars to build something new.

The other thing is that the refinery industry has been pretty good at incrementally adding light oil capacity around the country. A thousand barrels a day (1 Mbbl/d) here, 2 Mbbl/d there—that has added up over the last two or three years. I don't know what the exact number is, but certainly there's been no problem in getting gasoline to market, as you can tell by the big drop we've had in gasoline prices over the last six months.